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Nicholas Mapa, Senior Economist at ING, notes that the Bank of Indonesia nudged its 7-day reverse repurchase rate by 25 basis points higher to 5.75%.

Key Quotes

“BI has increased its policy rate a total of 150 basis points for the year with Governor Perry Warjiyo looking to stabilise the Indonesian Rupiah (IDR) and keep local bond yields attractive to draw in foreign funds.”

“In addition to rate hikes, Indonesia looks to roll out non-monetary measures to curb IDR weakness, expanding its policy toolkit to include measures such as limiting luxury goods imports, hedging instruments for corporates, and enticing exporters to convert half of their earnings to IDR.”

“With BI officials telegraphing that monetary authorities will maintain their current stance until next year, we can expect BI to remain busy deploying a host of measures to address IDR volatility.”

“Central bank rate hikes moving in tandem with its planned hedging programmes and tax incentives for exporters will likely contribute to IDR stability in the near term, especially as Governor Warjiyo appears to enjoy a degree of credibility from the market.”